How Does the College Premium Change over a Career?

Workers with a college degree earn more, on average, than workers with only a high school diploma. This gap is often called the college or skill premium. But how does it change over a person’s career? Is most of the gap already present when workers enter the labor market, or does it grow as they gain experience?

The answer depends on how earnings are measured.

For this analysis, I use data from the Current Population Survey’s Annual Social and Economic Supplement, from 1975 to 2025. I compare workers ages 18 to 65 whose highest level of education is a high school diploma with workers who completed exactly a four-year college degree. The sample includes people who earned a positive amount of labor income during the previous year. Because college graduates tend to enter the labor market later, I define potential experience differently for the two groups. For high school graduates, it is age minus 18. For college graduates, it is age minus 22.

Average Annual Earnings and Hourly Wages over the Career

I start by looking at average annual earnings and hourly wages over the life cycle.The CPS annual supplement asks salaried workers to provide not only their annual earnings but also an estimate of hours worked during the year. I then use this information to calculate estimated hourly wages for salaried workers. The first two figures show that both measures rise most quickly early in workers’ careers and then slow down. College graduates earn more annually and have higher hourly wages at every experience level.

However, the size of the gap follows a different pattern depending on the measure. For annual earnings, the gap is especially large near labor market entry and becomes somewhat smaller with experience. For hourly wages, the gap appears to increase over much of the career.

The next figure shows this more directly. It plots average college graduate earnings and wages relative to the corresponding averages for high school graduates. The college earnings premium starts above 2, meaning that college graduates initially earn more than twice as much per year as high school graduates. It then generally declines toward about 1.8. The wage premium starts lower, around 1.6 to 1.7, but increases somewhat with experience.

Why would the college premium decline when measured using annual earnings but rise when measured using hourly wages?

Share of Full-Time, Full-Year Workers by Education

Annual earnings reflect both how much a worker earns per hour and how much the worker works during the year. A person working full time for the full year will earn much more than someone earning a similar hourly wage but working part time or only part of the year. Hourly wages remove much of this difference in hours worked.

To reconcile these opposing trends, I divide workers each year into two groups: The first comprises people who worked full time and for the full year, and the second comprises everyone else who earned some labor income (those who worked part time, part of the year or both).

The next two figures show the share of workers in each group over the life cycle. For both education groups, the share working full time and for the full year rises early in the career. But the transition happens much more quickly among college graduates.

Among college graduates, the full-time, full-year share rises to almost 80% within the first several years of potential experience. It then remains near that level for much of the career. Among high school graduates, the share also rises, but the increase is more gradual. It continues climbing for several decades before reaching the mid-70% range.

This matters because the full-time, full-year group earns considerably more. Among high school graduates, average annual earnings are about $57,000 for full-time, full-year workers, compared with about $23,000 for everyone else. Among college graduates, the corresponding averages are approximately $97,000 and $40,000, respectively.

Why College Premium Patterns Differ for Earnings and Wages

The college sample shifts toward the higher-earnings group very early in the career. After this point, much of its earnings growth comes from growth in hourly wages. The dynamics look different for high school workers. They also exhibit a shift toward the higher-earnings group, but much more slowly. As the composition of high school graduates gradually moves toward workers with higher labor force attachment (the full-time, full-year group), their average annual earnings continue to grow as well, because this group works more hours. This helps explain why they catch up to college workers somewhat in annual earnings and why the college earnings premium declines.

This mechanism does not have the same direct effect on hourly wages. Because wages are annual earnings divided by estimated hours worked, they more closely reflect the amount workers are paid for an hour of their time. By this measure, the high school group does not appear to catch up. Instead, the college wage premium increases modestly over the life cycle.

There are several possible explanations for this pattern. College graduates may experience faster wage growth as they learn on the job. They may benefit more from changing employers or moving into jobs with steeper wage profiles. The figures do not distinguish between these possibilities.

Still, the figures show the college premium can differ depending on how it is measured. Annual earnings combine hourly pay with the amount of time spent working. Because labor market attachment changes differently for high school and college graduates, the annual earnings premium can decline even as the hourly wage premium rises.

Notes

1. The CPS annual supplement asks salaried workers to provide not only their annual earnings but also an estimate of hours worked during the year. I then use this information to calculate estimated hourly wages for salaried workers.